July 17, 2018
You’ve completed over £40m of property investments over the last year. Does this suggest that commercial property is a safe haven for investors?
Like any form of investment, there are ups and downs. Investment in commercial property is a long-term commitment bearing in mind property is an asset, literally bricks and mortar, and so it does not have the liquidity found in stocks and shares for example. The higher the level of returns across the different types of property reflects the level of risk.
As an asset class, investors should bear in mind changes in markets, for example the impact of online shopping as opposed to traditional High Street retailing. Though this is a current issue facing High Streets, conversely the trend is creating demand for distribution space.
Does this apply just to corporate or is there room for private investors too?
There is room for high net worth investors and also investors through their self-invested personal pensions (SIPPS). Through a SIPPS, a building can be purchased and the rent paid is in effect the return on the investment and is tax free, giving good levels of return.
Is this across all sectors being offices, industrials, retail and residential?
Yes, but be wary of rises and falls in sentiment. When considering an investment remember the three c’s – caution, carefully and conservatively.
Are there sub-groups within these sectors such as out-of-town offices or student accommodation?
Yes. There is the sub-division of major asset classes such as the surge in student accommodation for example, or office developments which can range from small schemes to very much larger projects.
Is this activity city centre focused or are there greater opportunities on the edge of major conurbations, even in market towns?
There are investment opportunities and activity everywhere, but looking specifically at market towns, present retail trends are having a negative impact on their high streets.
I know your activities cover the UK. Is the North East as good an area within which to invest as other parts of the country?
Yes of course, but as always the investment process has to be thoughtful. Essentially, investments need to have good covenants on good leases with ten years unexpired and no break clauses for example.
Do you have any advice for the investor about sectors to target?
Looking at the North East, I would say industrials and warehousing, as well as offices, providing the investor buys sensibly. Where there is a shortage of product there can be rental growth. The investment market is like a staircase – step first then rise as new developments achieve an increase in rental values.
Finally, is investment just about yields or is the case for investment in property more complex?
It is about yields but there is far more to the process – location, asset type, lease terms, basis of rent reviews, tenant quality and covenant strength. It’s a case of caution, as already mentioned, and the asset needs to be actively managed to achieve the best return.
Gavin Black & Partners